Going separate ways? Differences in school-to-work pathways between Europe and the US

Glenda Quintini15 May 2012

Recent sizeable increases in youth unemployment are compromising the school-to-work transition of recent school graduates. This column uses optimal matching, a method borrowed from molecular biology, to study the transitions from school to work in Europe and the US. It argues the share of youth facing serious difficulties on the labour market is 18 percentage points smaller in the US than in Europe. In Europe, 30% of youth face difficulties settling into the labour market and another 15% are trapped in long-term unemployment or inactivity.

The recent global economic crisis has brought renewed attention to the difficulties faced by youth in the labour market, including high unemployment rates, the risk of long-lasting scars from poor employment outcomes right after leaving education and the resulting risk of social and economic exclusion (Annunziata 2012). Between December 2007 and March 2012, youth in both the US and Europe have suffered from sizeable increases in unemployment rates – 5 and 7.5 percentage points, respectively – compromising the school-to-work transition of recent school graduates. However, even before the crisis, some youth faced difficulties in getting a firm foothold into the labour market.

In order to improve youth labour-market outcomes in the US and Europe, understanding transitions from school to work is central. Key issues concern the time needed to find a first job after completing education, the smoothness of the transition, e.g. whether it involves repeated spells of unemployment and inactivity, and the extent to which easy school to work transitions determine future labour-market success. These features of school-to-work transitions are influenced by labour-market institutions and educational settings, suggesting very different outcomes for school-leavers in the US and Europe. Compared to most European countries, the US has a much more liberal labour market than Europe, with lower protection from firing afforded by workers, lower non-wage labour costs such as employers’ and employees’ social security contributions and a less generous unemployment insurance system. The education system in the US is also rather different from those in European countries, with fewer children in pre-school education but a slightly higher average age of compulsory schooling across states.

Unfortunately, when approaching the task of analysing school-to-work transitions, the major limitations of traditional summary indicators employed in cross-country comparisons become evident. Youth unemployment rates only provide an instantaneous picture of the position of youth in the labour market, while the time needed to find a first job represents an over-simplification of the complex transition process. In fact, as a rich literature on youth labour-market dynamics suggests, only a small fraction of school leavers settles into career employment or persistent inactivity straight away. Many change jobs multiple times, experience unemployment, and move in and out of the labour market, before finding a job that offers career prospects and some stability or withdrawing from the labour market for a prolonged period of time or returning to education.

School-to-work transition pathways

It is in this context that optimal matching, a novel method borrowed from molecular biology, provides an interesting way of identifying the most ‘representative’ pathways followed by young people after leaving full-time initial education. Rather than focusing on specific events and on average outcomes, this method allows summarising the entire path followed by a young person after leaving education – including the nature of spells and their order – and comparing different trajectories. In doing so, optimal matching accounts for the dynamic nature of youth labour market situations.

When optimal matching is applied to the comparison of school-to-work transitions in the US and Europe in the late 1990s and the early 2000s, interesting findings emerge.1 Despite some similarities between the two areas, pathways in the US are characterised by significantly less time spent in unemployment than in European countries. Besides, both negative pathways – dominated by unemployment and inactivity spells – and positive pathways – dominated by employment and education spells – are characterised by more dynamism in the US than in European countries. Figure 1 shows the share of youth in four key pathways identified by Quintini and Manfredi (2009). Over a five-year period after leaving education, ‘high performers’ spend most of their time – 70% or more – in employment and take less than six months to find their first job after leaving school; ‘poorly-integrated new entrants’ move in and out of employment, unemployment, inactivity and sometimes education, signalling difficulties in settling on a promising career path; ‘left-behind’ youth spend most of the five years in unemployment or inactivity; ‘returning to education’ youth leave education for a spell on the labour market of varying length but ultimately return to complete high school – if they have dropped out before completion – or to attend tertiary education.

Figure 1. Key School-to-work transition pathways for high-school students in Europe and the US

Notes: a) The European countries included are: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Spain, Portugal and the UK. The empirical analysis includes control for country-specific effects and other key individual characteristics. Source: OECD Secretariat calculations based on the National Longitudinal Survey of Youth (NLSY) 1997 and European Community Household Panel (ECHP) survey, waves 1 to 8 (1994 to 2001). Adapted from Quintini and Manfredi (2009).

The US has a significantly larger share of high performers than Europe2 and many more youth return to education after a spell out of work and studying. As a result, the share of youth facing serious difficulties on the labour market – left behind and poorly integrated new entrants – is 18 percentage points smaller in the US than in Europe. In Europe, 30% of youth face difficulties settling into the labour market and another 15% are trapped in long-term unemployment or inactivity. On the other hand, in the US, poor integration affects 21% of youth and the fact that long-term unemployment is uncommon reduces the share of youth ‘left behind’ to just 6% of youth facing long-term inactivity.

Unsurprisingly, significant variation in the size of the at-risk groups can be observed across European countries. In Quintini and Manfredi (2009) we show that countries with strong apprenticeship systems and/or low-regulated labour markets – notably, Germany and the UK – have the largest shares of high performers. Indeed, with highly regulated labour markets it is very important to have strong vocational education and training systems to compensate for these rigidities (e.g. Germany, Austria). On the other hand, southern European countries with a high incidence of temporary work – notably, Italy and Spain – have the largest shares of at-risk youth.

1 Quintini and Manfredi (2009) carry out this comparison by exploiting monthly observations in the National Longitudinal Survey of Youth for the US and the European Community Household Panel survey for Europe.
2 It should be kept in mind, however, that the criterion of success here is employment, not wages or fringe benefits. If the latter was used, the US might look somewhat less “successful” compared with some European countries.